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Blog - Young, Wealthy and Robo

Only 6% of households with more than $5 million of net worth are Millennials or GenXers. Yet these young wealthy households are the most attractive future customers for financial services providers. But many of these young investors are turning to robo-advisors to manage at least a portion of their assets. This may provide challenges for advisory firms in the future. While it is unlikely that the vast financial advisory business will eventually cave to a robo-only environment, the impact of robo-advisors will be felt. Human advisors will need to provide different attributes than what robo-advisors provide ... which may be a challenge to some firms depending upon their existing service model.

In research conducted in the fourth quarter of 2017, Spectrem Group found that 56% of Millennials and GenXers with more than $5 million of net worth (not including their primary residence) used a robo-advisor to manage some or all of their assets. The average balance managed by a robo-advisor was $421,000. In contrast, only 13% of Baby Boomers and 8% of the WWII generation with the same $5 million net worth were using a robo-advisor. Average balances, however, were much higher at $790,000 and $1,117,000 respectively.

When Ultra High Net Worth (those with $5 million plus of net worth identified above) Millennials and GenXers are asked to identify their primary financial provider, several names pop to the top. Fidelity is first at 17% and Charles Schwab, Vanguard, and JPMorgan Chase all tie at 10%. At least three of these providers offer some type of robo-advisor as part of their overall services. While it’s not clear from the research if the robo-advisor used is with their primary provider, it’s interesting to note who these young investors prefer. Their primary selection factor for an advisor, however, is past investment performance.

When asked about satisfaction levels with their advisor, more than 80% are satisfied with the services they are receiving. However, when asked about services they hope to receive in the future, long term care (51%) and elder care (46%) are identified. While some of their future needs such as a present net worth calculation and the rate of return needed to meet financial goals can be supplied by a robo-advisor, it’s unlikely that issues such as long term care, elder care and tax planning can be achieved by a non-human. This provides the future opportunity for financial advisors. They need to become the personalized touch to understand the emotional part of planning. Some issues just cannot be plugged into an algorithm.

So advisors need to be sensitive but they also need to be educated about the issues and alternatives that young wealthy investors want to discuss. More than 70% of these investors educate themselves about investments. Expect detailed questions. Additionally, expect the questions to be asked via text, email and other electronic mediums. Learn to Facetime.

Responsiveness. Sensitivity. Knowledge. This is what a human advisor will need in the future to compete with robo-advisor ... (and also a few tickets to the baseball game might help!)